Buy Now Pay Later
Buy Now Pay Later services are increasingly substituting short-term financing needs of the consumers in an efficient and advanced form of tech-based services offered through the applications of the service providers.
These services providers are accelerating their potential to capture the substantial market and consumers. Status quo in the industry has brought in AASB 9 - Financial Instruments and AASB 15 - Revenue from Contracts with Customers, impacting the reporting structure of the financial statements. These services are being extended to consumers, including cards, leasing, commercial leasing, corporate services.
Let’s discuss two BNPL stocks listed on ASX:
Flexigroup Limited (ASX: FXL)
Flexigroup provides finance solutions to consumers and businesses in Australia, New Zealand & Ireland. It offers - consumer revolving finance & cards, lease and rental financing services, and no interest ever payment products.
In April 2019, the company consolidated its buy now pay later product and launched humm (brand). On 26 September 2019, the company reported onboarding of a number of high-profile retailers to its BNPL platform – humm.
Onboarding of new retailers represents the brand’s target areas including - retail, health, and home improvement. According to information released on ASX, the company suggests that volume growth in the initial two months of FY 2020 was up by 85% compared to the previous year across key verticals.
Further, the brand has been witnessing significant growth in customer & retailer, and the total number of retailers has reached 18k. YTD FY 2020 transactions on the humm platform rose by 25 percent y-o-y basis. Meanwhile, smaller value transactions (less than $2k, repaid in 10-12 weeks) grew 67% in y-o-y terms.
Release to the exchange, notes the addition of numerous retailers, health care providers, and home improvement retailers. Some notable mentions include Hanes Australasia, KOOKAÏ, Hallenstein Glasson Holdings Limited, Bevilles, Mitre 10, RedEarth Energy Storage, Hearing Choices, Core Dental, and more.
In its full year ended 30 June 2019, the company reported revenue of $472.7 million, up 3% over the year. Net profit after tax was up 778% at $61.7 million in FY2019 compared to a loss of $9.1 million in FY2018. Previous year results were restated to reflect the impacts of AASB15 Revenue from contracts with customers.
During FY 2019, the interest income increased 5% to $357.5 million driven by strong growth in credit card spending, long term credit card finance rolling into interest-bearing. Interest income increased by 6% over the previous year due to increase in borrowings to fund growth in receivables.
Meanwhile, the increase in impairment losses was driven by the change in accounting standard AASB 9. The company also incurred one-time write-off in commercial leasing of $14 million that added to impairment losses. Additional impact on the impairment loss was attributed to an increase in receivables portfolio and write-offs, among others.
In FY 2019, the receivables and customer loans increased by 9% to $2,567.8 million compared to June 2018, primarily attributing to NZ Cards customer loans growth of $98.6 million, AU Cards customer loans growth of $91.1 million, and AU Commercial receivables growth of $51.8 million.
Further, borrowings of the company increased by 12% to $2,387.7 million due to a growth in receivables and customer loans. Increase in provisions was due to undrawn credit commitments related to the credit card portfolio.
Flexigroup maintains a dynamic funding strategy, and it has revolving wholesale debt facilities with investors, banks via its Asset Backed Security (ABS) programs in Australia & New Zealand. At the year-end, the company had $2,754.1 million of wholesale debt facilities with $433.3 million undrawn. In addition, its $198.4 million corporate debt facilities were drawn to $98.1 million, and these facilities are secured with maturity ranging from March 2020 to March 2022.
On 26 September 2019, FXL last traded at $2.42, up by 23.469% relative to the last close.
Afterpay Touch Group Limited (ASX: APT)
Afterpay Touch Group provides payment solutions for consumers and businesses through its Afterpay & Pay Now services and businesses.
On 26 September 2019, the company responded to the ASX query related to the sudden increase in the price of its securities on 25 September 2019, following the release of an announcement related to AUSTRAC Update - Interim Report.
Accordingly, the query from the stock exchange has questioned the sudden increase in the price of the company’s securities. In response, the company asserts that the median might have had an influence on the recent trading in its securities. However, the company could not confirm if this was the specific reason behind the recent trading activity.
Further, on 25 September 2019, media had reported that Goldman Sachs had added the company’s stock to its ‘conviction list’ while upgrading the stock of the company to ‘buy’ from ‘neutral’ with a target price of $42.9. Also, the media cited that Thorney Technologies had affirmed its view as “upbeat” for the company.
On 25 September 2019, the company released an announcement related to the Austrac Update – interim report related to the AML/CTF matters. The updated follows the company’s previously disclosed information regarding the matters.
In the announcement, the company notified that confidential interim report of external auditor Mr Neil Jeans was provided to AUSTRAC, and it does not provide any recommendations to be left to the final report.
Reportedly, Mr Jeans had directed that work was ongoing to complete the assessment of, test implementation, compliance with numerous AML/CTF Programs being in place during and after the notice period.
Further, the company did not identify any terrorism financing activity in its systems to date, and its systems have numerous features to control its money laundering and terrorism financing risk. These systems include strict spending limits, and the company’s services are used by customers for small value transactions with average spending of $150.
The company’s services do not allow the customer for international funds transfers, and it launched its service in 2015 as a start-up. Presently, the company is a part of a growing innovative technological ecosystem that is evolving over time by consumers, regulators, and stakeholders.
In addition, the company recognises the necessary procedure undertaken by AUSTRAC, and it welcomes the opportunity to collectively work with AUSTRAC, ensuring a smooth and robust AML/CTF compliance.
In its full-year ended 30 June 2019, the company had posted a total income of $264.11 million compared to $142.34 million a year ago. Operating expenses of the group had increased significantly during the period, resulting in a wider operating loss attributing to a loss for the year.
In FY 2019, the company had posted a net loss after tax of $43.8 million compared to a loss of ~$9 million in FY2018. There had been a significant expansion in the receivables impairment expenses that reached $58.7 million in FY 2019 compared to $32.7 million a year ago.
On 26 September 2019, APT last traded at $35.52, down by 1.333% relative to the last close.
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